Sales slump: production of Logan slowed

Sales slump: production of Logan slowed

Mahindra Renault Ltd, the joint venture between India’s biggest maker of utility vehicles, Mahindra & Mahindra Ltd, and French auto giant Renault SA, is sharply scaling back on the production of the Logan, the low-frills sedan that helped revive Renault’s sales globally, amid a slump in sales within India.

The car, which was launched in May in India, has seen sales slide in the last couple of months forcing the company to scale back production at its Nashik plant by some 30-40% this month, say vendors familiar with the situation.

After selling 2,786 units in its launch month, the monthly sales figures were down to an average of 1,561 units in November.

At least three vendors supplying to the company said that production at the Nashik plant has been scaled back from 125 units a day in the August–September period to between 70 and 80 units a day in December and that the company plans to keep to this lowered schedule until February.

The vendors didn’t want to be named because it could affect their business with the firm, but said they are in the know because of the revised production schedule they have been handed for supplying parts to the carmaker.

One vendor said that the company is left with an inventory pile-up of the car following declining sales in the market and has cut production to tide over the current situation.

Mahindra officials say the scale-back had more to do with overall auto sales than any specific problems with Logan’s sales.

“We had a good retail sale during the festive season but (from) 15 November onward, there is a lean period in auto sales until January so we are intentionally down-stocking our dealer stock and cutting back on production," said Mahindra Renault managing director Rajesh Jejurikar. “We are satisfied with our performance in the market."

Indian auto sales typically slow in December because cars that are bought in that month get tagged with the vintage of that year and could potentially see a dip in resale value in future. Consumers prefer to wait for the new year to get that year’s model and, typically, sales pick up in January.

Some car makers also typically shut production for a week in December for scheduled maintenance. But rarely do the December blues translate into scaling back production by as much as third or more, as seems to be the case with Logan.

Some analysts say that Logan is perceived as an over-priced product for its segment in India. Globally, it is sold for around €7,000 (Rs4.03 lakh) and has proved to be a volume grosser for the French car maker.

In India, however, the car begins with a price tag of Rs4.28 lakh for the petrol variant and goes up to Rs6 lakh for the diesel version, and has aggressive competitors such as the Maruti Swift, which was launched in May 2005 by India’s largest car maker, Maruti Suzuki India Ltd, and has sold 172,000 units so far. Mahindra Renault has sold 16,300 Logans since its May launch.

“It is a great product in terms of space (and) mileage, but when a consumer pays Rs6 lakh and above for a car, he does not want to be even perceived as driving a cheap car. The company has lost its chance of making it the car of choice of the executives and upwardly mobile car buyers," says S. Ramnath, vice-president at SSKI Securities Ltd.

Some of Logan’s vendors, meanwhile, are expressing concern over falling sales of the car. Many of them have made investments in upgrading their production facilities to meet Renault’s quality guidelines—teams of Renault executives visited vendors all over the country to check out their facilities before signing them on the Logan project.

The joint venture itself invested Rs700 crore and plans to produce 50,000 cars annually at Nashik. From its launch in 2004 to the end of October, some 700,000 units of the car—all its variants—have been sold across the world. The Logan is being produced in seven countries with South Africa on the anvil.